Chemical Leaman Tank Lines, Inc. v. Aetna Cas. and Sur. Co.

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: Before SCIRICA, NYGAARD and McKEE; SCIRICA; McKEE; Present BECKER, STAPLETON, MANSMANN, SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS, McKEE and SAROKIN
• Citation: Chemical Leaman Tank Lines, Inc. v. Aetna Cas. and Sur. Co., 89 F.3d 976 (3rd Cir. 2003)
• Decision Date: 03 January 2003
• Parties: , 27 Envtl. L. Rep. 20,083, 44 Fed. R. Evid. Serv. 1292 CHEMICAL LEAMAN TANK LINES, INC. v. The AETNA CASUALTY AND SURETY COMPANY; and Certain Underwriters At Lloyds, London, subscribing to Insurance Policies Numbers WAR 6771, WAR 6772/A, C62P 10-117, L62P 10-117, 64P 3-121, L64P 3-121A, L64P 3-121B, C64P 3-121B, C65P 5-119, C65P 5-119A, L65P 5-119A, L66P 5-119A, C67P 4-158, L67P 4-158, C68P 2-116, L68P 2-116, C68P 2-116A, C68P 2-116B, L68P 2-116A, L68P 2-116B, C7

Page 976

89 F.3d 976

65 USLW 2060, 27 Envtl. L. Rep. 20,083,

44 Fed. R. Evid. Serv. 1292

CHEMICAL LEAMAN TANK LINES, INC. v. The AETNA CASUALTY AND SURETY COMPANY; and Certain Underwriters At Lloyds, London, subscribing to Insurance Policies Numbers WAR 6771, WAR 6772/A, C62P 10-117, L62P 10-117, 64P 3-121, L64P 3-121A, L64P 3-121B, C64P 3-121B C65P 5-119, C65P 5-119A, L65P 5-119A, L66P 5-119A, C67P 4-158, L67P 4-158, C68P 2-116, L68P 2-116, C68P 2-116A, C68P 2-116B, L68P 2-116A, L68P 2-116B, C71-03-03-13 L71-03-03-13, C71-03-03-13A, C71-03-03-13B, L71-03-03-13A L71-03-03-13B, C74-03-18-02, 77-01-19-23, 77-01-19-23A C77-01-19-23B, 79-04-19-10, C80-02-19-09, C80-02-19-09B, L80-02-09A, L80-02-19-09A, L80-02-19-09B, C83-02-19-09, L83-02-19-09A, L83-02-19-09B, L83-02-19-09C, Robin Anthony Gildart Jackson, an Underwriter at Lloyds, London, individually and in his capacity as representative Underwriter at Lloyds, London for certain subscribing Underwriters at Lloyds, London who subscribed to certain liability insurance policies issued to plaintiff Chemical Leaman Tank Lines, Inc.; Accident and Casualty Company of Winterthur; Alba General Insurance Company Ltd.; Allianz Cornhill International Insurance PLC, Formerly Known as Allianz International Insurance Company Ltd.; Anglo-French Insurance Company Ltd.; Argonaut Northwest Insurance Company; Assicurazioni Generali Spa; Baloise Fire Insurance Company; Bellefonte Insurance Company Ltd.; British National Life Insurance Society Ltd.; CNA International Reinsurance Co. Ltd., Formerly Known as CNA Reinsurance of London Ltd.; Delta Lloyd Non-Life Insurance Company; Dominion Insurance Company Ltd.; Drake Insurance Company Ltd.; Edinburgh Insurance Company; Excess Insurance Company Ltd.; Fidelidade Insurance Company; Folksam International Insurance Company (U.K.) Ltd.; Helvetia Accident Swiss Insurance Company; Indemnity Marine Assurance Company, Ltd.; Lexington Insurance Company Ltd.; London & Overseas Insurance Company, Ltd.; London & Edinburgh Insurance Company, Ltd.; London & Scottish Assurance Corporation, Ltd.; Gan Minster Insurance Company, Formerly Known As Minster Insurance Company Ltd.; National Casualty Company; National Casualty Insurance of America, Ltd.; New London Reinsurance Company, Ltd.; North Atlantic Insurance Company Ltd., Formerly Known as British National Insurance Co. Ltd.; Orion Insurance Company Ltd.; Pine Top Insurance Company Ltd.; River Thames Insurance Company Ltd.; Scottish Lion Insurance Company; Sovereign Marine And General Insurance Company, Ltd.; Sphere Insurance Company Ltd.; St. Katherine Insurance Company Ltd.; Stronghold Insurance Company Ltd.; Swiss Union General Insurance Company Ltd.; Taisho Marine & Fire Insurance Company (Europe) Ltd., Formerly Known As Taisho Marine & Fire Insurance Company (U.K.) Ltd.; Tokio Marine & Fire Insurance Company (U.K.) Ltd.; Turegum Insurance Company Ltd.; Unionamerica Insurance Company; United Standard Insurance Company Ltd.; Winterthur Swiss Insurance Company; World Auxiliary Insurance Corporation Ltd.; Yasuda Insurance Company (U.K.) Ltd. (hereinafter collectively referred to as "Jackson & Companies"), Appellants at No. 93-5777, Aetna Casualty and Surety Company ("AETNA"), Appellant at No. 93-5794.

No. 93-5777, 93-5794.

United States Court of Appeals, Third Circuit.

Argued Sept. 26, 1994.

Decided Oct. 12, 1995.

Petition for Panel Rehearing Granted

and Opinion and Judgment Vacated

Dec. 15, 1995.

Submitted on Petition for

Panel Rehearing Dec. 15, 1995.

Decided June 20, 1996.

Order Denying Rehearing and

Rehearing In Banc July 22, 1996.

Henry Lee (Argued), Gary P. Schulz, John G. McAndrews, Hannah M. O'Driscoll, Mendes & Mount, New York City, William J. Hanley, Ronca, McDonald & Hanley, Livingston, New Jersey, for Appellants at No. 93-5777.

Brian J. Coyle (Argued), Peter E. Mueller, Harwood Lloyd, Hackensack, New Jersey, William H. Jeffress, Jr., Miller, Cassidy, Larroca & Lewin, Washington, DC, Edward M. Dunham, Jr., Miller, Dunham & Doering, Philadelphia, Pennsylvania, for Appellant, Aetna Casualty and Surety Company.

Kevin B. Clark (Argued), John P. Dean, Conrad J. Smucker, Willkie, Farr & Gallagher, Washington, DC, for Appellee, Chemical Leaman Tank Lines, Inc.

Thomas W. Brunner, Wiley, Rein & Fielding, Washington, DC, for Amicus Curiae Appellant, Insurance Environmental Litigation Association.

Karen L. Jordan, Office of Attorney General of New Jersey, Department of Law & Public Safety, Trenton, New Jersey, for Amicus Curiae Appellee, State of New Jersey, New Jersey Department of Environmental Protection & Energy.

Before SCIRICA, NYGAARD and McKEE, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Circuit Judge.

Chemical Leaman Tank Lines, Inc. brought this declaratory judgment action against Aetna Casualty and Surety Company and the London Market Insurers, seeking a declaration that defendants' insurance policies covered the cost of environmental clean-up at Chemical Leaman's Bridgeport, New Jersey facility. After a three week trial, a jury found Chemical Leaman was entitled to partial coverage under several policies. Thereafter the New Jersey Supreme Court decided Morton Intern., Inc. v. General Acc. Ins. Co., 134 N.J. 1, 629 A.2d 831 (1993), cert. denied, 512 U.S. 1245, 114 S.Ct. 2764, 129 L.Ed.2d 878 (1994), which interprets several key provisions of comprehensive general liability insurance policies in the context of environmental pollution. Defendant insurers now appeal, contending the district court incorrectly instructed the jury on whether Chemical Leaman "expected or intended" to cause environmental damage under Morton. We believe Morton requires an inquiry into the insured's subjective intent to cause environmental harm, unless "exceptional circumstances" support a presumption of the insured's subjective intent. Therefore we conclude the district court's jury instructions were proper.

Defendant insurers raise several other issues on appeal. They argue the district court mistakenly limited the applicability of the policies' pollution exclusion clause, incorrectly adopted the "continuous trigger" theory as New Jersey law, and ignored the prejudicial effect of Chemical Leaman's failure to file its claims for coverage in a timely manner. They also dispute the district court's exclusion of evidence relating to environmental contamination at other Chemical Leaman facilities. We will affirm the district court's holdings on the pollution exclusion clause, the "continuous trigger" theory, and timely notice. We also conclude that the exclusion of certain evidence was within the sound discretion of the district court. ¹

I. Background

A. Contamination at the Bridgeport Facility

Chemical Leaman Tank Lines, Inc., a tank truck company that specializes in the transport of chemicals and other liquids, operates a number of tank truck cleaning facilities around the country, including one in Bridgeport, New Jersey. At the Bridgeport facility, Chemical Leaman disposed of rinsewater contaminated with chemical residue during the cleaning process into a water treatment system designed by Harry Elston, Chemical Leaman's Manager of Real Estate and Engineering, and Harry Wagner, a professional sanitary engineer. At its inception in 1960, the Bridgeport water treatment system consisted of three unlined ponds connected by "tee pipes." The ponds were intended to purify rinsewater by filtering out contaminants as the water seeped into the soil. The designers of the system believed that the forces of gravity would separate contaminates from the rinsewater, and that natural processes of aerobic and anaerobic microbial degradation would break down trace contaminants. An overflow pipe drained from the final pond of the water treatment system into an adjacent swamp in order to allow water to escape in the case of heavy rains.

In September 1961, an Inspector with the New Jersey Division of Fish Game & Wildlife informed Chemical Leaman that its water treatment system was "not satisfactory." In response, Chemical Leaman constructed two additional aeration lagoons and a settling lagoon with a limestone bed. The lagoons were designed to function in the same manner as the first three ponds. But the overflow pipe still drained from the last lagoon into the neighboring swamp.

Water pollution inspectors with the New Jersey Department of Health observed discharge from the overflow pipe into the swamp in November 1968. They found the discharge to be "highly pollutional" and ordered Chemical Leaman to submit a plan to improve its water treatment system. In May 1969, Chemical Leaman submitted a plan, but state regulators found it to be unsatisfactory. Thereafter state regulators and Chemical Leaman unsuccessfully attempted to reach agreement. Finally, on January 28, 1974, Chemical Leaman and the New Jersey Department of Environmental Protection entered into a consent decree in which Chemical Leaman agreed to construct an approved water treatment facility. In 1975, Chemical Leaman arranged for its wastewater to be treated by Du Pont and ceased to use the system of ponds and lagoons. Subsequently, Chemical Leaman drained the ponds and lagoons, dredged them, and filled them with brickbat, sand and concrete.

In 1980, a routine survey by the New Jersey Department of Environmental Protection discovered groundwater contamination at and around the Bridgeport site. Subsequent investigations established that the ponds and lagoons were the primary source of groundwater contamination on the site, and that several private wells near the facility were either contaminated or threatened with contamination. The federal Environmental Protection Agency placed the Bridgeport site on the Superfund National Priorities List in 1984, and, in 1985, Chemical Leaman entered into a consent order with the EPA. Chemical Leaman admitted liability under the Comprehensive Environmental Response, Compensation and Liabilities Act ("CERCLA") and...